Maximum drawdown is the largest percentage loss an investor could have realized during a period. It measures the pain an investor may feel if the loss recurs. Comparisons must be made using similar time periods, as maximum drawdown will be greater as measurement frequency interval becomes smaller. It will also be greater for a longer time series, potentially disadvantaging managers with longer track records.

Uninterrupted drawdown calculates the length and severity of an uninterrupted drop.

Recovery time or drawdown duration is the time taken to recover to the prior level.

Arbitrage is a two sided strategy involving the simultaneous purchase and sale of related securities that are mispriced compared to each other.

Convertible arbitrage style exploits pricing anomalies between convertible bonds and the underlying equity, typically long the convert and short the equity. It is designed to profit from the fixed income security and the short position in the stock. Typically employ leverage (up to 6:1) and face interest rate, credit, liquidity and corporate event risk.

The index arbitrage style exploits mispricings between the index and index derivatives.

The mortgage-backed securities arbitrage style seeks to profit from the pricing difference between a mortgage instrument with uncertain prepayment and credit quality characteristics, and a non-prepayable Treasury security.

]]>http://financial-education.com/2010/09/03/the-relative-value-arbitrage-style/feed/0http://financial-education.com/2010/09/03/the-relative-value-arbitrage-style/What is the Bera-Jarque statistic?http://feedproxy.google.com/~r/FinancialEducation/~3/hcRHW_waPVY/
http://financial-education.com/2010/08/12/what-is-the-bera-jarques-statistic/#commentsThu, 12 Aug 2010 14:15:17 +0000William Trenthttp://financial-education.com/?p=794The Bera-Jarque statistic combines skewness and kurtosis into a single measurement, and determines whether kurtosis is unusually different from its expected value.

It is calculated as T/6[skewness^2 + (kurtosis^2/4)]

If the Bera-Jarque statistic is less than 5.99, the returns are considered normally distributed.

The distressed securities style focuses on debt and equity of companies experiencing or expecting to experience financial difficulty. It includes reorganization, bankruptcy and distressed sales. Securities often trade at deep discounts due to regulatory restrictions on some investors, lack of research, low liquidity and excessive investor fear. Investors accept credit and liquidity risk in hope of long-term turnaround. Sometimes managers hedge with options, sometimes take active roles in restructuring the company.

The merger arbitrage style shorts the acquirer and goes long the acquiree to capture the spread.

]]>http://financial-education.com/2010/08/03/the-event-driven-style/feed/0http://financial-education.com/2010/08/03/the-event-driven-style/What is kurtosis?http://feedproxy.google.com/~r/FinancialEducation/~3/PzX4zRbm_ko/
http://financial-education.com/2010/07/12/what-is-kurtosis/#commentsMon, 12 Jul 2010 14:08:58 +0000William Trenthttp://financial-education.com/?p=792Kurtosis is the fourth central movement of a distribution. The first three movements are mean, standard deviation, and skewness. It measures the distribution’s peakedness and the thickness of its tails.

Leptokurtosis, or positive excess kurtosis, indicates a distribution that is more peaked at the center and has fatter than normal tails.

Platykurtosis, or negative excess kurtosis, indicates a relatively flatter top and thinner tails.

]]>http://financial-education.com/2010/07/12/what-is-kurtosis/feed/0http://financial-education.com/2010/07/12/what-is-kurtosis/The Equity Long-Short Stylehttp://feedproxy.google.com/~r/FinancialEducation/~3/sPAbSC1vUTw/
http://financial-education.com/2010/07/03/the-equity-long-short-style/#commentsSun, 04 Jul 2010 03:28:26 +0000William Trenthttp://financial-education.com/?p=771Hedge funds using the equity long/short style invest in equities, combining long and short investments to reduce but not eliminate market exposure. Major sub-categories of the style include:

Global

Regional or industry focus

Dedicated short bias

Emerging market

Market timing

The short selling style acts inversely to market direction.

The emerging markets style invests in all types of securities (equity, fixed, sovereign) in emerging markets. It tends to be more volatile and funds are often long-only due to local market restrictions on short selling.

The market timer style varies long and short exposure in reaction to market conditions.

]]>http://financial-education.com/2010/07/03/the-equity-long-short-style/feed/0http://financial-education.com/2010/07/03/the-equity-long-short-style/What is Skewnesshttp://feedproxy.google.com/~r/FinancialEducation/~3/oJHWybinLIM/
http://financial-education.com/2010/06/12/what-is-skewness/#commentsSat, 12 Jun 2010 13:59:26 +0000William Trenthttp://financial-education.com/?p=789Skewness is the third central movement of a distribution. The first two movements are the mean and the standard deviation. It measures the symmetry of a return distribution around its mean.